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This is a real example based on a townhouse purchased in March 2005.
Purchase Price: $113,000.
Down Payment: 25% down. The fund is from equity line of credit. Interest only. Interest rate 4% anually. Annual payment: $113,000 X 25% X 4% = $1,130/year.
Mortgage: 75% purchase price. 25 years term. Three years fixed term at 3.6%. Principal is 1.7% of purchase price. Annual payment: $113,000 X 75% X(4%+1.7%) = $5,170/year.
Property Tax: $1,200/year
Strata Fee: $145.20/month => $1,743/year
Property Management: $50/month + 7% tax => $642/year
Repair: $50/month => $600/year
Rent: $900/month - 5% vacancy rate => $10,260/year
Total cost per year: $1,130 + $5,170 + $1,200 + $1,743 + $642 + $600 = $10,485.
Annual Cash Flow: Revenue - Expenses = $10,260 - $10,485 = (-$225)
======================================================================
Two years have passed, and the interest rate has risen to 6% for the LOC part, and 5.2% for the mortgage part. Ignore the principal paydown, annual expenses increased by $1,243; rent increase from $900 to $950, for an annual increase of $570. This results in a negative cash flow of $898 per year.
P.S.: Notice a principal of 1.7% is considered an expense because this is a have-to payout for every month. This in reality is not expensed but sinks in as equity. This part is $113,000X1.7% = $1,921/year. If this is excluded from the expenses, then the property yields a positive cash flow of $1,023 every year.
P.S. 2: If you would purchase the townhouse today, you would have to purchase it at a price of $180,000. It is no longer possible to get a positive cash flow in either way.
Purchase Price: $113,000.
Down Payment: 25% down. The fund is from equity line of credit. Interest only. Interest rate 4% anually. Annual payment: $113,000 X 25% X 4% = $1,130/year.
Mortgage: 75% purchase price. 25 years term. Three years fixed term at 3.6%. Principal is 1.7% of purchase price. Annual payment: $113,000 X 75% X(4%+1.7%) = $5,170/year.
Property Tax: $1,200/year
Strata Fee: $145.20/month => $1,743/year
Property Management: $50/month + 7% tax => $642/year
Repair: $50/month => $600/year
Rent: $900/month - 5% vacancy rate => $10,260/year
Total cost per year: $1,130 + $5,170 + $1,200 + $1,743 + $642 + $600 = $10,485.
Annual Cash Flow: Revenue - Expenses = $10,260 - $10,485 = (-$225)
======================================================================
Two years have passed, and the interest rate has risen to 6% for the LOC part, and 5.2% for the mortgage part. Ignore the principal paydown, annual expenses increased by $1,243; rent increase from $900 to $950, for an annual increase of $570. This results in a negative cash flow of $898 per year.
P.S.: Notice a principal of 1.7% is considered an expense because this is a have-to payout for every month. This in reality is not expensed but sinks in as equity. This part is $113,000X1.7% = $1,921/year. If this is excluded from the expenses, then the property yields a positive cash flow of $1,023 every year.
P.S. 2: If you would purchase the townhouse today, you would have to purchase it at a price of $180,000. It is no longer possible to get a positive cash flow in either way.
Thanks a lot for the info ! I will try these resources.
You local newspaper must mention this vacancy rate from time to time.
Also, there must be local apartment owners' organizations.
Thank you very much for quick response and advices!! I'm using realtor.com, but my concern is: for a specific house I'm interested in, (assuming based on the paper calculation, the rent can cover the morgage ane expenses with 5% vacancy assumption), I don't know how easily I can rent it out in reality, -- I think this depends heavily on the very local environment (which portion of the area.., which neiborhood). I can find out the general info of the whole area from internet, but the info of such very local preference can't be found..., I guess..., so I was thinking to ask agent.. What's the best way to get the accurate info on these types of info? Thanks again!
You have to spend the time to do the search. You cannot expect a realtor to constantly give you information. Also, most realtors are not investors and they do not know much about real estate investment.
It is very easy to verify rent, just check local newspaper to see the rent range. Start reading the real estate section of your local newspaper.
As for positive cash flow, it is increasingly difficult to find these, but if you go far enough from the metropolis, chances are you can find one. This really depends on where you live.
讀了很多您的關於房地產的大作， 受益良多。 我們在美國，也正在想開始(業餘)做， 想向您請教：
怎麽能找到好的項目？ 我們想通過網上，報紙查找周邊有發展的地區(county)，然後通過real estate buying agent找到具體的有positive cash flow(或能打平）的房子， 想法是否行的通？一方麵覺得要依靠agent ，因為他們應該對地區具體情怳熟，但擔心他們是否會告之真實的房子可租性及其他地區具體形勢 （畢竟他們隻想賣給你房子），哪些可以相信，及如何查證他們告訴的情怳（例可租性）是真實的？謝謝不吝賜教。